Their quickness stunned Japan’s competitors. Some know-how came to them because producers in other countries hired Japanese firms to make objects (watches, auto parts) that the more advanced country could label and sell as its own. Much they copied by reverse engineering, taking Western models apart and learning to make them better. They also sent missions to visit Western lands and humbly learn by watching and asking, photographing and tape-recording. “Humbly” was the word: the Japanese are the proudest of people, but that very sense of pride raises humility to an art and a virtue. These bowing and hissing embassies were repeatedly astonished by the openness of their hosts, especially in the United States. But why not? The Americans thought they had little to fear from these defeated little people.3
Even more impressive was the Japanese ability to go beyond imitation and invent. A visit to a Japanese showroom is a look into the future: the objects look familiar, but they do new things. Their greatest success came in automobiles, an industry so voracious and varied in its appetite for materials and parts that it could act as locomotive to most of the manufacturing sector. Beyond that they set their eyes on the most advanced and demanding high-tech products: optical devices, precision machinery and instruments, robotics and electronics. Before the war, the Germans held a quasi-monopoly on high-quality cameras; names like Leica and Zeiss were legendary. At the end of the century, Leica is still there, but a good Leica camera costs three times as much as the Japanese equivalent. For rich aficionados, price does not matter. But for most users, including professional photographers, that kind of difference is prohibitive. Japan dominates the market, leaving niches to others.
All of this has been supported by the world’s most effective quality controls. Before the war, Japanese goods were scorned as rubbish—-shoddy, meretricious, unreliable—made for five-and-dime stores. That was partly a rational response to deep depression and sharply restricted demand. But now, in the growing affluence of postwar growth, the last had become first, and Japanese cars, cameras, TVs, and minicomputers set the industrial standard. How did they do it? Partly they were inspired by American example, in particular, the doctrine of W. Edwards Deming, who became an honored prophet far from his own land. But the idea alone would not have been enough. It was the Japanese ethic of collective responsibility—one simply does not let the side down—that made for effective teamwork, sharing of ideas between labor and management, attention to detail so as to eliminate error (zero defects).
Competitors in older industrial nations woke up late and looked around for someone to blame—anyone but themselves. Their first excuse was that the Japanese were not playing fair, that they enjoyed access to foreign markets but refused to open their own. The complaint had merit, although the Japanese were only following earlier European and American examples: protect until you’re so strong you don’t have to worry about competition. In the late Tokugawa and Meiji periods (1850s to 1900), when Japan was prevented by treaty from imposing customs duties, much of the resistance to foreign goods came from deep-rooted, culturally determined consumer preferences. Also from bureaucratic regulations that tormented importers; the open-door period was a school in nontariff barriers to trade. Once Japan was free to set tariffs, it set them high enough to shelter home industry.
After World War II, world trade policy changed direction. The disastrous experience of the thirties, when industrial nations closed doors and windows and beggared neighbors, had led most economists and politicians to recognize the advantages of free trade, not only for economic prosperity but international harmony. Sentiment along these lines was, to be sure, far from unanimous, but with the United States leading the way, diplomacy and expertise urged everyone to open up. America here was following the British precedent of a century earlier: now that it was the richest, most powerful economy in the world, it renounced old protectionist habits; though in a nation of frequent elections and political deals, it was not always easy to find and erase the heresies. (Some of these vested interests bordered on the ludicrous. During the war, Americans had learned to make a sort of vermouth to replace the French and Italian versions. With peace, this infant industry found it could not compete with the genuine article. So it called for protection on national security grounds and almost got it.)
Japan went along with this move to freer trade, but no country was so effective in enforcing nontariff barriers.* The ingenuity of Japanese contumacy became legendary. Baseball bats were drilled on arrival to make sure they were all-wood. High-tech new medical equipment was generously allowed in, but the procedures using these machines were excluded from health coverage (the ban was lifted once the Japanese had built their own devices). Automobiles were taken apart and checked inside and out before they might be sold to consumers. Once, vexed by increasing imports of French skis, the Japanese tried to exclude them on the pretext that Japanese snow was different. The French responded by threatening to exclude Japanese motorcycles on the ground that French roads were different. Understood; the Japanese dropped their plans.
All of these vexations testify to a sly cunning, of a sort to permit indefinite delays, evasions, and flip-flops, and always with politely straight face. More serious in the long run are business ties and social expectations that exclude shopping for cheaper imports. The Japanese do not think of the market as an open space. It consists of enclosures, and business people who violate the boundaries will be warned that when and if such imports should be unavailable, the maverick bargain hunter will not find Japanese suppliers ready to help out.
What kinds of imported manufactures do get in? Primarily prestige brands, typically linked to national specializations: Scotch whisky, French cognac, Belgian and Swiss chocolates, Vuitton luggage, Patek and Rolex watches, Italian designer clothing—the sort of thing that makes a statement, whether as gift or conspicuous marker of success. All of Japan’s big department stores have separate boutiques for these items: a country ready to spend a hundred dollars for a supermelon with ribbon attached can afford to spoil itself. No room, though, for Kodak film; the Japanese have their own Fuji brand—and Japanese light is different.
This mercantilist policy has aroused indignation among trading “partners” and puzzlement among economists. Don’t the Japanese understand that such a policy is a deliberate impoverishment of their own population, who pay that much more for what they buy? No one would call the Japanese fools, even if they do occasionally make mistakes. Don’t they understand comparative advantage? Don’t they know that free trade promotes growth and wealth?
To these rhetorical questions, the Japanese reply that the end of economic policy is not low prices and discount distribution. The goal is market share, increased capacity, industrial and military strength.* Producers are more important than consumers. Anyone can buy, but not everyone can make. If people spend less now, they save more (about one third of income). Their children will have more and Japan will be the stronger.
Behind the Japanese, who by some measures may now be the richest people in the world, come the “little tigers” (or “dragons” if you prefer), the ambitious Asian newcomers who have shown the way to other aspirants. Two of these are the former Japanese colonies of Taiwan and Korea; two, Singapore and Hong-Kong, are global city-states that hark back to the commercial-industrial centers of late medieval Italy.4 No group has grown “more rapidly and more consistently” over the last thirty-five years.* In all four the primary assets have been a work ethic that yields high product for low wages; and, as in Japan, an exceptional manual dexterity that comes from eating with chopsticks and is especially useful in micro-assembly. (This last argument brings smiles from my colleagues, but I stand by it. Much of modern assembly is fine tweezer work, and nothing prepares for it better than eating with chopsticks from early childhood.)†
The availability of fine-skilled, low-wage labor has made all of these countries—plus regional followers such as Malaysia, Thailand, and Indonesia—attractive to advanced enterprises elsewhere, especially from places with overv
alued currencies.** Nothing has so persuaded the Japanese to manufacture abroad as the costly yen. Never has capital been so mobile. In the 1980s, foreign direct investment (FDI) by industrial nations was growing five times faster than world trade, ten times faster than world output; and even when these flows slowed in the ’nineties, FDI to the developing countries kept growing.5
In this way, investment and technique have cascaded from country to country, with wages rising accordingly. The Koreans moved into automobile manufacture with orders and technical assistance from American firms hard-pressed to meet Japanese competition. The Swiss and Japanese contracted for watches and parts made in Hong Kong, then in Malaysia. Japanese (NEC, Sony), European (Philips, Rollei), and American (G.E., Seagate Technologies) multinationals have made Singapore a world center of electronics and photographies, while Hong Kong, where refugee labor could once be had for a low wage and a pallet to sleep on among the machines, is busily setting up plants and leasing work in mainland China. Singapore has outsourced for telephones in Malaysia and the Philippines.
No economy is too advanced to be penetrated, no wall too high. By late 1996, more than thirty Korean companies had manufacturing units in Britain. Wales was congratulating itself on “revitalisation” by foreign, largely Asian, investors, and five thousand people applied for three hundred jobs with the first Korean company to come in. Other European countries are less hospitable. In France, the Korean conglomerate Daewoo Electronics agreed to take over the consumer electronics branch of the French firm Thomson Multimedia. This would have put it ahead of Sony as the world’s biggest maker of TV sets, which Thomson had been selling under the RCA label. The deal aborted. The Koreans were furious.*
In choosing investment targets, wage levels are clearly decisive, but market barriers and feelings, immaterial and personal, also matter. Thus American outsourcers found Korean partners far less expensive than Japanese; also a lot easier to work with. But when the Japanese set up affiliates in Korea, they soon found wages going up and pulled out for cheaper climes. And maybe the Koreans were glad to see them go.
(Why Malaysia? It has a population of only 19 million, so labor, at least unskilled labor, is hard to come by. But it has entrepreneurs, and they draw workers like a magnet. Illegal immigrants, mainly from Indonesia [population 190 million] and Bangladesh [115 million], pour in despite strenuous efforts to guard the gates. As everywhere, a thriving business smuggles people for outlandish fees. The outsiders don’t look that different, but they are; so that it’s not the competition for jobs that bothers the natives, it’s mixed sex. The prime minister of Malaysia cites complaints by village leaders: girls running off with foreign boyfriends, unwed mothers ditched by partners, wives abandoning their families to elope with foreigners, who may well treat them better.6 Can’t have that.)
Ethnic connections also count, particularly among expatriate (overseas) Chinese. The Chinese, middleman minority par excellence, are the leaven and lubricant of Southeast Asian trade, and from there around the world. They cherish a work ethic that would make a Weberian Calvinist envious, and they somehow pass it on through richer and poorer from one generation to the next.
(I recall my first visit to Hong Kong a generation ago. It was evening, and outside my hotel I passed a tiny camera shop tucked into a staircase landing. I glanced in, and that was enough. The merchant immediately asked me what I was looking for. Well, I had begun with nothing in mind, but then I remembered that I could use a special lens; so I asked for it. His face fell; he did not have it in stock. Then he brightened up. If I came back later, he would have it for me. I told him I was off to dinner, would not come back until midnight at least. “Don’t worry,” he said. “You come back. I be here with lens.” A little after midnight I returned and started up to my room. Then I remembered, but told my sleepy self it was a waste of time. But then I felt guilty, went back to the shop, and of course found the store open and my man there, with lens. Find me an American or a European to do that.)
The Chinese played a crucial role from the start in the success of European rule—in Dutch Indonesia and the Spanish Philippines, and then in the late nineteenth century in French Indochina. They continue to thrive in the successor states.7 International partnerships have developed along ethnic lines. Thus Hong Kong, Taiwan, and Singapore are launching platforms to Thailand, where many Chinese have taken Thai names, the better to fit in;* and to Malaysia, where the Chinese run the business show, although affirmative action and smart politics urge them to adopt Malay partners.’† Thailand prides itself on transcending differences, in part by strongly discouraging separate Chinese schooling. The Chinese smile politely, publicly approve, but often supplement the Thai curriculum with school abroad. The community balances “on an invisible see-saw between two or more identities.”8 In economic matters, that means that the Chinese know who they are and can work with one another.
In Malaysia ethnic differences are sharper, ressentiment keener. Malaysia has known violence, race riots—nowhere near so bad as in Indonesia, but bad enough to make a point. So everyone plays down the ethnic factor. In the meantime, on the island of Penang (northwest coast), disk-drive capital of the world (over 40 percent of output), the Chinese hold most of the executive and engineering positions. “They’re more like Americans,” says one exec, “they live to work.”9 Members, then, of a rare aristocracy: most people work to live.
Riding the wave of economic growth, the worldwide network of Chinese traders and entrepreneurs grows daily stronger. The success of this diaspora would justify calling the so-called East and Southeast Asian miracle an ethnic, that is, cultural triumph. In Indonesia, where the Chinese form 4 percent of the population, they controlled in the early 1900s seventeen of the twenty-five largest business groups. In Thailand (10 percent Chinese), they number more than 90 percent of the richest families and own the same proportion of commercial and manufacturing assets. That they do not own just about everything is due less to indigenous competition than to the claims made by political insiders, who have founded their own privileged enterprises or expect a piece of whatever looks good.
Guesses about the overall output of Chinese-controlled businesses, including China itself, but excluding Indonesia, Thailand, Malaysia, and the Philippines, speak of $2.5 trillion (1012) in 1990, ahead of Japan ($2.1 trillion), half as big as the United States, and growing faster than both.10 Some feel that Japan’s moment of leadership is already past.11 Japan’s strength and weakness—both—are its sense of national distinctiveness and superiority. This stimulates the Japanese to high levels of performance, but it also makes it hard for them to work with others as equal partners.* My own sense, however, is that the Japanese will learn—as always.
Two caveats to this East Asian success story. The first concerns promotion from plantation industry to autonomous enterprise. Using modern technology is much easier than inventing it. A handful of countries are responsible for the vast bulk of industrial patents. These rampageous comers, with their lusty infant industries, have yet to stand on their own feet. Some of the hardest work still lies ahead.
Secondly, the faster the growth, the greater the negative side effects, material and psychological (haste makes waste). Remedies require social and political institutions capable of mastering the problems and undertaking solutions. These institutions may not be in place. Time marches on; the remedies never catch up. Often it is simply a question of priorities: money matters; people are expendable; related costs can wait.
Take Thailand. The metropolitan area of Bangkok has both exploded and imploded. Industry and trade have rushed in, drawing throngs of job hunters after, and nominal household income has increased tenfold in twenty years.12 Happy builders have filled every open and underused space. Even canals, once lifeblood arteries, have been cemented over to gain ground for construction. Rising income has made cars proliferate, both for commerce and private use, and the traffic jams are monumental. When I visited Bangkok in 1979, the American Embassy put a car and driver
at my disposal. The car had a mobile phone (in my innocence, I’d never seen one) to notify the embassy if we were stuck in a jam; and I was told to make only two appointments a day, one for A.M., one for P.M. Today, Bangkok has 10 million people (twenty times its population in 1900) and many of them prefer big cars. Vehicles pour in every day from the suburbs and surrounding countryside. Drivers need not only a mobile phone but a potty. Powerful people order motorcades, even for wife and children, but the effect on the hundreds of vehicles blocked off and piled up may well be imagined. In 1979, I quickly learned not to walk in the streets during the day; the air was unbreathable. Today, half the traffic cops in the city are suffering from respiratory illness, and a 1990 study reports that bad air (lead levels three times those in Europe or the United States) costs six points in IQ by age seven.13
In short, urban Thais are richer, but also poorer. Not in income, but in quality of life.* Only 2 percent of Bangkok’s population is tied to proper sewage disposal. The water table is falling; the city is sinking into a treeless river delta that lies open to ocean flooding. Bad living conditions impede further development. Thailand has gone about as far as it can on the basis of cheap labor; cheaper labor lies just across the border. It now needs high-tech, knowledge-intensive industry, which calls for foreign investors and expatriate technicians, and they won’t come to breathe poison. Meanwhile the macroeconomic figures show spectacular growth and are swelled by the very effort to correct these maladies. Antipollution devices and measures, waste disposal, medical care, and similar expenditures show up on the plus side of income and product accounts.
“They Can Have Any Color They Want”: The American and Japanese Automobile Industries
Henry Ford, in one of his wry brags, said that the buyers of his cars could have them in any color they wanted, so long as it was black. This was in the heyday of the Model T, which in fact was made at various times in a number of colors, though only one color at a time. That was the essence of Ford’s philosophy of mass production: make all the cars alike, and make a lot of them. Sell them cheap and everyone will buy them. People who wanted styling and individuality could look elsewhere. Or buy a Model T chassis and have the coachwork done to order.14
The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor Page 56